Improving Public Debt Management
In the OIC Member Countries
139
Domestic debt marketIran’s general government debt is largely held domestically, which is why Iran Debt
Management is mainly subject to refinancing rather than exchange rate risks. Between 2008
and 2011, the share of domestic general government debt to total general government debt
remained on a high level between 62.1% in 2008 and 65.6% in 2011. In 2012, the share of
domestic debt increased to 83.9%. Until 2017, these high levels of domestic general
government debt prevail due to the economic sanctions, which led to a weak involvement in
international economic relations (Atkinson 2015). While total (public and private) external
debt represents approximately 2.7% of GDP in 2015, this share is expected to rise in the future
when the sanctions will be lifted (IMF 2015a).
Loans owed to the banking system represent a large share of domestic general government
debt (IMF 2015d). The claims of the banking systems on the public sector (including stateowned companies) equalled 1676.9 trillion rials (about $53 billion) in March 2015 (CBI
2015a). The government indebtedness to banks in 2015 amounted to 1191.3 trillion rials
($37.6 billion) or 60% of general government gross debt, and the government’s indebtedness
to the central bank was equal to about 9.2% of general government gross debt. The bond
market represents less than 3.2% of the overall financing needs in the Iranian fiscal year that
ended in March 2015, while approximately 89.2% was facilitated by money markets and 7.6%
by the stock exchange (Kalhor 2016). Between 2011 and 2015, only 5% of the transactions in
Iranian capital markets took place in the bond market (Kalhor 2016). However, Iran plans to
further develop the domestic bond market by lowering transaction costs to reduce debt
service costs of the government over the mediumto longterm (IMF 2015a). Such a domestic
securities market is supposed to increase financial stability and to improve financial
intermediation as it fosters greater competition and the evolution of related financial
infrastructure, instruments and services (Kalhor 2016).
Foreign borrowingIran issued international debt for the last time in July 2002 (IMF 2002). The Eurodenominated
bonds worth of about $1 billion were paid off full in 2007 (Fitch 2015). Iran is currently
planning its return to international debt markets in order to finance the recovery after the
nuclear deal prepared the way out of isolation (Montevalli 2016), which is expected to open up
opportunities to transform the debt practises in Iran (Iyigün and Tozy 2016).
External public debt is denominated predominantly in Euros and U.S. Dollars. The share of
Eurodenominated public debt in total external public debt decreased slightly from 56.53% in
2008 to 50.8% in 2012. U.S. Dollar has the second largest currency share, which equalled
33.15% in 2008 and increased continuously to 39.9% in 2014. The share of Japanese Yen
shows a decreasing trend from 7.40 in 2008 to 3.5% in 2014. The same pattern can be
observed with the share of the Swiss franc, which started with 3.7% in 2008 and disappeared
almost completely in 2014 (0.6%). Future external public debt, which is expected to be issued
after the sanctions are lifted, is likely not to be denominated in U.S. Dollar, but either in Iranian
Rials or in Euro (Wright 2015).